By Ben Cahill

About the author: Ben Cahill is director for energy markets and policy at the Center for Energy and Environmental Systems Analysis, University of Texas at Austin.

The U.S. oil industry isn't pleased.

After years of perceived hostility from the Biden administration, oil companies expected President Donald Trump to deliver new licensing and permitting on public lands, more natural gas infrastructure, and a deregulatory agenda. Instead, Trump's tariffs and trade wars could trigger a recession and a prolonged oil price downturn.

The whiplash began early in the new administration when Trump officials began touting the benefits of lower oil prices and implied that the oil-and-gas industry could thrive with oil prices at $50 per barrel. Shale producers disagree, to put it mildly.

On stage at the CERAWeek energy conference in Houston last month, oil and gas executives applauded the Trump administration's energy focus and the end of a Biden-era pause on liquefied natural gas project authorizations. Yet private conversations at the event were dominated by bearish sentiment about potential tariffs and downside price risk. Executives couldn't square Trump's moves with candidate Trump's "energy dominance" agenda.

This shouldn't be so surprising. Trump promised booming domestic production and rock-bottom energy prices -- achieving both objectives simultaneously is a tall order. The president, like most of his predecessors, appears to be prioritizing lower energy prices, especially since he promised to tame inflation. But there are several challenges ahead.

First, presidents have limited control over oil production volumes. To be sure, presidents control leasing and permitting policies on public lands, but these only account for about 25% of U.S. crude oil production. And Trump's "drill baby drill" slogan is disconnected from industry realities.

Management teams at hundreds of oil-and-gas companies making investment decisions that shape output take their signals from Wall Street rather than the White House. And after the Covid-19 shock, shale producers adopted a disciplined approach to spending, debt repayments, and dividends. Investors were pleased, and companies saw no need to rock the boat. Greater consolidation in the shale patch has also left more production in the hands of fewer large producers, encouraging continued capital discipline.

The industry cannot deliver higher volumes without price support. In the recent Dallas Federal Reserve Energy Survey, companies estimate they need $65 per barrel (for West Texas Intermediate -- the leading U.S. benchmark crude) to profitability drill new wells. After Wednesday's 90-day pause on Trump's "reciprocal" tariffs, WTI immediately rallied from $57 to $63 per barrel. But in a challenging economic climate, prices are more likely to fall from here than they are to rise. The shale industry has achieved remarkable gains in capital efficiency over the past decade, and these innovations will no doubt continue in a lower price environment. With WTI in the $60 per barrel range, production growth is likely off the table.

Another concern: After years of production restraint, the Organization of the Petroleum Exporting Countries and allied producers (OPEC+) has finally called time on output cuts. On April 3, the group decided to ramp up production by 411,000 barrels a day starting in May. Several factors drove this decision. Saudi Arabia and other producers are frustrated with overproduction by Kazakhstan and Iraq and may want to punish the cheaters. But this also seems like an effort to test shale producers. Even before the steep price downturn of recent weeks, the market anticipated U.S. production growth would slow substantially this year. Riyadh now may feel more confident about applying pressure.

This parallels past OPEC decisions. As the journalist Javier Blas wrote last week, ramping up production in the face of an economic downturn recalls the "ghost of Jakarta" -- when OPEC decided in late 1997 to raise output just as the Asian financial crisis was picking up speed.

Shale producers may remember a more recent episode: former Saudi energy minister Ali al-Naimi's momentous decision in 2014 to test U.S. shale and protect OPEC market share, leading to a deep price downturn. It isn't clear that OPEC+ has the stomach to make a similar move today, but the group may see some value in "sweating" U.S. shale producers for a few months to test the market response.

The U.S. oil-and-gas industry will likely adopt a fortress mentality. Companies will defer activity, reduce capital expenditures, release rigs, and search for ways to cut costs. The ripple effects of those decisions will spread throughout the oilfield services sector and into local communities.

This will be a trying period. It is a reminder that whoever occupies the White House, it is hard to control a complex global market that ultimately depends on strong demand. For now, the macroeconomic outlook requires a defensive posture. Energy dominance will be elusive.

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April 15, 2025 00:30 ET (04:30 GMT)

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